By Francesca Di Meglio

Students at Columbia Business School in New York have a saying about the school's pass/fail grading policy: P equals MBA. The idea is that P is all you really need to earn in each course to graduate -- and it doesn't have to be all that high a hurdle for those who don't want to work too hard.

"You need to put [Ps] on your transcript, but the grade isn't an absolute measure of how much you learned and improved from start to finish," says Cindy Bo, a first-year MBA student at Columbia. Still, Bo believes the school's grading system is effective because it fosters collegiality and puts the emphasis on learning rather than numbers.

SATISFYING CUSTOMERS.  As the latest batch of MBA students brace themselves for upcoming finals, some administrators and recruiters worry that grading has gotten too easy. More schools are moving to some variation of a pass/fail system. And at many of those that still give old-fashioned grades, grade inflation is so bad that students rarely get lower than a B.

Indeed, some B-schools have switched to pass/fail systems as a way to combat the tendency of teachers to dole out too many As. The problem is so pronounced in undergraduate education that Harvard University President Lawrence Summers has tried to clamp down because an absurdly high 90% of students graduated with honors. Princeton University recently imposed a grading curve so that no more than 35% of undergraduates can get As.

Grade inflation has clear downsides, particularly for MBA programs. It's difficult for corporate recruiters -- who, after all, tend to be performance-oriented -- to fairly assess which students did better than others. Worse, at B-schools there's no end to the trend in sight. As grade inflation continues, student expectations will continue to rise, and the schools need to meet them. After all, keeping their customers satisfied is the road to referrals to other potential students, alumni dollars, and continued support.

FACE VALUE.  A soon-to-be-published new study shows how deeply embedded grade inflation already is throughout the entire system. A pair of researchers, Don A. Moore, an assistant professor of organizational behavior at Carnegie Mellon University's Tepper School of Business, and his partner, Samuel Swift, the director of the Tepper Behavioral Research Laboratory, studied grade evaluation by B-school admissions committees after controlling for institution quality using publicly available rankings.

They discovered that admissions staff, even at top B-schools, take grades at face value, thus MBA applicants are more likely to gain admission if they came from an undergraduate institution that inflated grades. Moore deduces that recruiters would have an even more difficult time understanding the difference between an A at a school with a traditional grading curve and one somewhere else.

Not every school is a pushover. The old way of thinking had graduate students receiving letter grades corresponding to points (A=4.0, B=3.0, C=2.0, D=1.0, F=0), much like they probably received in high school and college. Your GPA would be tallied, and you'd be ranked relative to your peers.

"NOT A FINISHING SCHOOL."  That's how it should be, says Jerold Zimmerman, the Ronald Bittner Professor of Business at the University of Rochester's William E. Simon Graduate School of Business Administration, which has had such a system for the past 15 years. B-school should be about higher learning, and grades are a way to prove the value of a student's education, Zimmerman says, adding: "This is not a finishing school."

Simon enforces a program-wide grade-distribution policy. For example, in all core courses for which enrollment exceeds 40 students, the number of grades worse than B should never be less than 8%, and for those classes with fewer than 40 students, 4%. In electives with a class enrollment of 25 or more, the number of grades below B should never be under 4%.

Even though many students still get high grades, the imposed curve forces professors to put a cap on them, which is not the case at every school. And recruiters can easily understand a given student's GPA. The policy is pretty strict, as the faculty doesn't even round up for students with a GPA of 2.999 -- just below the minimum 3.0 necessary to graduate.

HUSH ABOUT GRADES. On the other end of the spectrum, the Kellogg School of Management at Northwestern University forgoes the traditional GPA entirely. It's up to each professor to decide how to dole out letter grades representing a certain adjective (A=excellent, B=good, C=fair, D=poor, and F=failing). The only stipulation is that students must earn a cumulative average of C in all courses to get a degree.

B-school administrators say graduate students are self-motivated and do well because the admissions offices carefully screen applicants. "Our students are used to excelling, and we expect them to excel here as well," says Robert Korajczyk, Kellogg's senior associate dean of curriculum and teaching. Grading on a curve might inhibit students from taking courses outside of their comfort zone, he adds. Most schools, including Kellogg, leave it up to the student to decide whether to give out transcripts, but a few prohibit any disclosure of grades.

Harvard Business School is one of the schools that don't reveal grades. "Companies are not supposed to ask about grades, and students are not supposed to offer such information," says HBS spokesperson Jim Aisner. But second-year students can say on their resumes whether they received first-year honors. At HBS, 15% to 20% of the top students are placed in Category I, 65% to 75% in Category II, and the bottom 10% of the class in Category III. Students rarely receive Category IV, which designates failure.